You have to plan how you will spend your money ahead of time o Conscious Spending setting your own priorities and spending your money Personal Finance Exam 2 Study Guide Spending The Basics o Money spent today isn t there to spend tomorrow o Enjoy the things you buy NOT the buying of things o One secret to being rich SPEND LESS THAN YOU MAKE Conscious Spending o Be conscious of what you re spending your money on o Goal THEN spend money guilt free Spend Invest o Catch Frugal Isn t Cheap It s Smart o Frugal choosing what you spend your money on o Spend on what s important to you NOT on what isn t on what s important to you It s a trade off of priorities o Fight social pressure spending Keeping up with others is a full time job Spend Wisely o Don t spend more than you must Sales season changes holidays coupons Comparison Shop prices gas time return policy Generics off brands Shopping on the internet Additional costs shipping handling sales tax etc o Internet Is it worth the money o Inexpensive things add up You should sweat the small stuff o Buy what you need Use appropriate Multiple use o Go less expensive BUT not without Expensive things usually cost more to maintain Ex a Porsche In the end do you really need the Porsche o Think Total Cost Ex Buying a Printer When buying a printer the current price of it may be cheap BUT eventually the price goes up when buying expensive ink in order to even use it o Don t throw away money literally Utilities Lights TV Radio Computer Hot water use Excess Cell Minutes Little things add up Impulse Buying and Hidden Costs o Examine why you spend Focus on two areas where you spend the most o Some Ideas Leave price tags on and save receipts Delay purchases Remind yourself of opportunity costs Interest payments result in items costing more o Still have budget problems Bottom Line Don t spend more than you make Envelope money This shows you where the little money disappears Everything can be done in moderation Handling Money o Track your spending o Don t cut out Reduce o Set your own priorities o Expect the unexpected Ex Emergencies o Be flexible o Serious debt issues Examine committed expenses Too much housing expense o Move or change your lifestyle Too much car Cash out your checks put money in envelopes and title them Title each one o Rent groceries etc o When you re out of money STOP spending o If payments are too high insurance is higher gas is higher repairs etc Take all of it into consideration and question whether you really need that car or if you can live with a cheaper one Start Saving o Saving Young o Analysis 7 of annual returned at age 67 Person A Age 20 years old Yearly Investment 2 000 for 10 years Total Investment 20 000 Total Returned 377 774 Person B Age 30 years old Yearly Investment 2 000 for 25 years Total Investment 50 000 Total Returned 284 898 o The 20 year old put in less money but has an additional 10 years of compounding Therefore they made more money on interest Saving and Wise Spending o Don t increase spending once an item is paid for o Continue loan payments to YOURSELF o Raises Bonuses Tax Refunds Gifts o Divide your money into pools Review Automatic Payments o Will you always have that money in your account o Or do you need those expenses Subscriptions Clubs Gym Cable Bundled Services o Examine insurance heeds Life Insurance If someone has insurance on you they make money if you die o Once you re a parent you do need life insurance Insurance o Insurance is for protection o Health Home Car Disability o Deductible how much you can afford How much you can pay off before insurance has to pay o Shared Risk Another Trade Off premiums How much can you handle yourself Self insure Deductibles Advertising Games o Would you buy it without the sale o Red tags DO NOT always equal sales o Pricing An additional 20 off and item already reduced by 40 DOES NOT equal 60 off o Package Sizes shrinkage and dimples Ex The shrinking of food packages rather than raising the price Mind game o Store Placement o Music smells aisle wandering vegetable sprinkling systems Ex Music in Department Stores with subliminal messages Don t Lose Money o Read the fine print o Don t make others rich Over the limit fees Bounced check fees Traffic Parking Tickets o Avoid unnecessary costs Don t pay for things you don t use Double check bundled services Home Buying Home Buying o A life style decision o Actual Cost vs Opportunity Cost House Price Commission Closing Cost Maintenance Costs landscaping utilities repairs Miscellaneous taxes fees insurance new stuff etc o Benefits Personal satisfaction Potential Appreciation Real estate investment risk Tax benefits for now o What can you afford Analyze Credit score Current ability to pay How much will you give up Same as bank will lend Buying a House o Know what you want o Pre qualify for loan o Real Estate agents Who pays their commission The seller What determines the amount The price of the house Can be very helpful Multiple listings Moving to different locations o Negotiations Price Conditions things that will stay etc Moving arrangements For example if the seller can t move for a month you make an arrangement for the moving date around that While Haggling The house can sell Earnest Money money put up to encourage the seller to take the house off the market while the buyer finalizes loans The Contract CHECK EVERYTHING Buyer and Seller Decide who pays what Unable to finance Final walk through closing settlement date Mortgage Payment o Components P Principal amount borrowed I Interest cost of money T Property Taxes Taxes I Insurance homeowner s Principal and Interest pays towards loan o Let s say you insure your home for x amount of money you get 50 in case of total destruction 200 000 100 000 is paid to you in the case if your house is burned down or in a scenario like that Property Taxes and Insurance go into an escrow account Escrow money held by a third party on behalf of other parties for release under stated terms If you don t follow through on buying the house the money in the escrow account goes to the homeowner for time spend showing the house keeping house off the market If you follow through it applies to closing costs The bank does this to assure that the homeowner is paying their taxes and insurance o PMI Private Mortgage Insurance If you don t can t put down 20 up front it covers the difference between the value of the home and what you owe If you can put a down payment of 20 or more you may not